Rockefeller Family Tries to Keep A Vast Fortune From Dissipating

By RICHARD D. HYLTON

Published: February 16, 1992

The Rockefeller name is synonymous with the summits of wealth and philanthropic largesse. The family has founded museums, universities, philanthropic foundations, and some of the country's biggest national parks.

But, like so many Americans, the Rockefellers -- albeit on a grander scale -- are worried that their future generations may not be able to enjoy the life or influence the family now has. And so they have begun a vigorous effort to bolster their fortune, which they currently estimate at $5 billion to $10 billion.

For decades, the family quietly collected the interest on billions of dollars, and gave away hundreds of millions. What changed? Some family members pressed for access to the core of the fortune to increase their income. The climate for investment soured and produced lower yields. And most important, as the family grew, so did the number of people with claim to a piece of the fortune.

"Historically our goal has been the preservation of wealth rather than the amassing of wealth, but now that the client base is moving to 100 there is a new emphasis on growth," said David Rockefeller Jr., one of the many great-grandchildren of John D. Rockefeller, the family patriarch and America's first billionaire.

In trying to rebuild their legendary wealth, the Rockefellers for the last few years have made numerous and substantial private investments in Asia, Latin America and Europe. They have created a formal corporate structure under which most of their diverse business enterprises operate. And they are slowly increasing the level of risk they are willing to take in the quest for higher returns on their investments.

The family fortune has accustomed the Rockefellers to living very well indeed. But for most of this century, they have also a unique level of power and prestige that has gone hand in hand with their wealth and their tradition of philanthropy. As each generation splinters the family fortune, it is becoming harder for the family to maintain its status.

Currently, family members personally donate about $50 million a year to various causes, while foundations endowed by the family give away about $17o million each year. "The work here is to rebuild the per-capita wealth," David Rockefeller Jr. said. "But will we find another Standard Oil? Probably not."

John D. Rockefeller, an accounting clerk, became one of the richest and best-known men in the world by turning a $4,000 investment in an oil refinery business into a large stake in the Standard Oil Company, which grew into a formidable monopoly. It was broken up into smaller companies that were the predecessors of Exxon, Mobil, Chevron and others. By 1914, Mr. Rockefeller was worth more than $1 billion (adjusted for inflation, that would be about $13.8 billion today). In 1917, he gave his only son, John Jr., $460 million (about $5 billion in today's dollars).

In 1934, John D. Rockfeller Jr. established trusts for his daughter and five sons that consisted of oil company stocks and real estate holdings. These trusts still hold the bulk of the fortune. Another set of trusts were set up in 1952 for his grandchildren, the fourth generation of the family. When family members die, their trusts divide into new trusts for their children.

In the last three years, the family has hired a new team of professional money managers. They oversee Rockefeller Financial Services, as the new family holding company is called, and are also developing a money management business for institutions and wealthy families who want to invest along with the Rockefellers.

The 200 or so professionals who manage the family fortune are known within the family as either "the family office" or "Room 5600," the number of the suite where they work on the 56th floor of 30 Rockefeller Plaza. These advisers also handle the family members' income taxes, philanthropic pursuits and legal work, insure their huge art collection and help write speeches for family members. The Fourth Generation Takes the Family Torch

The changes in the family's investment strategy also reflect the nearly complete passing of the family torch from the famous Rockefeller brothers to their children, the fourth generation. The changes are also an attempt by David Rockefeller Sr. to provide some direction to the fourth and fifth generations of Rockefellers, who are not likely to be the nexus of wealth and influence that their parents and grandparents were.

Most of the Rockefeller money is tied up in various trusts that keep the principal out of the hands of the beneficiaries, who live off the substantial interest. Some of the 1934 trusts, which hold the bulk of the fortune, will end with the death of the fourth generation, and some fifth-generation family members will immediately get possession of huge fortunes.

With that in mind, the family, prodded by David Rockfeller Sr., determined that it was time to create a structure that could provide direction, sophisticated advice and options for family members as they prepared for the 21st century.

David Rockefeller Jr., who is 50 years old, recently succeeded his father as chairman of the Rockefeller Financial Services. Virtually all the family's investments, with the important exception of Rockefeller Center, are overseen by Rockfeller Financial Services.

The mortgaging and sale of interests in the 12 original buildings in Rockefeller Center in 1985 and 1989, respectively, was one instance in which the family withdrew some of its core wealth that was tied up in real estate that paid no dividends. That complex deal, which gave the Mitsubishi Estate Company of Japan a majority position in Rockefeller Group Inc., the company that owns the buildings, allowed the family to take $2 billion out of their New York real estate portfolio at the peak of the 1980's property market.

The money was put into the trusts that hold most of the family wealth and greatly increased the interest income that some family members collect annually. 'If You Don't Have It You Can't Give It Away

"Until the very recent past people didn't care too much whether the company was making money as long as their account was doing well," said John Harris, the chief executive of Rockefeller Financial Services. "It had to become more of an institution and David and Laurance kicked off a study of the family office three years ago that reached the conclusion that a certain critical mass and growth was needed.

"If you don't have it, you can't give it away," said Mr. Harris of the family's prospects for continued philanthropy. "It's a little like the royal family. Charles and Diana, for example, spend most of their time raising money for philanthropy."

The Rockefeller offices are in many ways quite modest, even pinched. It consists of a warren of small individual offices, the furnishings largely nondescript. But on the walls are European paintings and works of African art that would do many a museum proud. David Rockefeller Sr.'s modest suite, for example, is dominated by a large Chagall painting.

Rockefeller Financial Services has five main arms. Rockefeller & Company is the money management arm, with over $3 billion in its care, more than two-thirds belonging to members of the family. Each participating family member has a separate account that is managed according to his income and growth needs as well as tolerance for risk in investments.

David Rockefeller Jr. said the family hoped for a 10 percent annual return on its investments and was looking abroad for opportunities.

There are also several pooled funds that combine various pieces of the family fortune. Several hundred million dollars in Rockefeller & Company comes from large institutions like universities that invest some of their endowments with the Rockefeller family office.

Rockefeller & Company has been managing institutional money for about 10 years but only recently has begun to make money management a source of profits for the family. For its institutional clients, the company has about 15 percent of the money in fixed-income securities and cash, 51 percent in large stocks, mostly European, 31 percent in small stocks and 3 percent in private joint-venture deals.

For the family, the company has roughly 8 percent of its money in 14 joint venture deals in Asia, Latin America and Europe. Most of the money is in equities, with roughly 35 percent in large capitalization stocks, another 30 percent in fixed-income securities and the balance in an array of small capitalization stocks, private deals and cash. The Rockefellers believe that the best returns in the next few decades will be in the developing nations of Asia and Latin America.

Among the 14 ventures are Elex Computer Inc., in South Korea, which distributes Apple Computer Inc.'s equipment in Asia and also provides consulting services to businesses, and Gwalia Consolidated Inc., an Australian mining company with a large gold mine and valuable properties.

A second family arm is Venrock, the family's enormous venture capital arm. It has invested in more than 70 small technology companies in Silicon Valley and New England. Eleven of those start-up investments were brought to the public markets last year, allowing the family to take some profits and make 1991 one of Venrock's most profitable years since Apple Computer went public.

So far this year one Rockefeller-backed company, Gilead Sciences of Foster City, Calif., has gone public. Two others, Opta Food Ingredients Inc. and Agridyne Technologies Inc., have registered to make initial public offerings.

A third arm is the Rockefeller Trust Company, the only private trust incorporated in New York State. It manages nearly 300 family trusts, a few of which are philanthropic.

Another arm is the Rockfeller Insurance Company, which provides family members with liability coverage for their work as directors and officers of many corporations and charities.

The fifth arm is Acadia Risk Management, an insurance broker that places policies for the family's enormous art collections, real estate and private planes. David Rockefeller Sr.'s art collection, alone, was valued at $500 million several years ago.

Only David, 76, and Laurance, 82, survive from the family's third generation, which included Nelson Aldrich Rockefeller, former Vice President and Governor of New York, Winthrop Rockefeller, former governor of Arkansas, and John D. Rockefeller 3d. Until the early 1980's there was no organized Rockefeller family business to speak of, only a handful of extremely wealthy individuals who lived off the income generated by trusts and who informally shared the costs of running the family office.

Laurance Rockefeller has pushed for greater access to the family fortune. He was also central in pushing the trustees to complete the Rockefeller Center deal. Described as a deeply introspective man, he is currently the biggest philanthropist in the family, parting annually with tens of millions of dollars for environmental causes, hospitals and universities. Donations Often Exceed His Income

In June 1990, for example, he pledged $21 million to create a Center for Human Values at Princeton, his alma mater. He has also given about $40 million to the Memorial Sloan-Kettering Cancer Center in New York City. Laurance is believed to have given away more than $200 million of his own money, and according to Mr. Harris, his donations often exceed his income. He has even managed to persuade the trustees of the 1934 trusts to allow him to invade his trust and give away part of the principal.

The Rockefellers are not alone in contending with low rates of return on many investment vehicles of the 1980's. Many people with big money are on the prowl for places to put some of it.

"In the 1980's with investments in the stock market, the bond market, initial public offerings and real estate you almost couldn't go wrong," said David Horn, a senior vice president of the Northern Trust Company, which provides administrative and consulting services to wealthy families. "In the 1990's you're seeing the collapse of some of these investments and so you're seeing families at this level trying to fight the ravages of taxes and inflation by reaching into riskier direct investments."

He added: "Unless you do some pretty innovative things and look at nontraditional way to grow assets, having a few billion dollars now won't be enough if you have the kind of philanthropic world vision that the Rockefellers do."

Granted, none of the younger Rockefellers are impoverished. But some want more income from the family's wealth. Only two of the fifth-generation Rockefellers are direct beneficiaries of the 1934 trusts, which generate most of the annual income. The 1952 trusts support mainly the fourth generation. In the fifth and sixth generations, most members are supported by small trusts their parents and grandparents set up at their birth.

Some of the younger Rockfellers have demonstrated an interest in business. Peter Rockefeller, for instance, a 34-year-old grandson of Nelson A. Rockefeller, is studying for a master's in business administration at Dartmouth's Amos Tuck School, and 31-year-old Steven Rockefeller Jr. recently completed an M.B.A. at Yale's School of Management. The latter, whose father apparently gave him shares in the company that owns most of Rockefeller Center, is one of the few members of the fifth generation whose income increased substantially with the mortgaging of the property and the sale of the company to Mitsubishi.

Photos: David Rockefeller Jr., who recently succeeded his father as chairman of Rockefeller Financial Services, next to a bust of his great grandfather, John D. Rockefeller. (Ed Quinn for The New York Times); John D. Rockefeller in a 1913 photograph. (pg. 34) Chart: "The Family Tree," lists the descendants of John D. Rockefeller, through the fifth generation. (Source: Rockefeller Financial Services; Fortune magazine) (pg. 34)